Published online by Cambridge University Press: 13 September 2012
For most of the twentieth century, Argentina solved the macroeconomic policy trilemma through domestic monetary sovereignty. This article illustrates how the need to finance deficits was behind Argentine sovereignty. We test the hypothesis of fiscal dominance between 1875 and the approval of the Austral Plan in 1991 and find that deficits drove money creation in the long run. The article also reveals how fiscal dominance, in a scenario of increasing currency substitution, helps to explain the dynamics of Argentine inflation in the second half of the twentieth century.
The authors sincerely want to thank three anonymous referees and the editor of the review for their detailed and helpful comments on previous drafts of this paper. We have received financial support from the Spanish Ministry of Sciences and Innovation (ECO 2009-08204 and ECO 2012-32837) and the Diputación General de Aragón (SEIM Research Group, SEC 26962 projects).